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Timing the sale of assets is critical to take advantage of tax opportunities, especially in the event of the Division 296 tax, says an SMSF specialist at one of the big four accounting firms.
Liz Westover, partner at Deloitte, told attendees at the SMSF Adviser Technical Strategy Day in Brisbane on Tuesday (15 October), that although she believes most people will continue to keep their money in superannuation if the $3 million super tax is legislated, some may rethink their estate planning, and selling assets could be part of that plan.
However, she warned that advisers need to educate their clients about the tax calculations that come into play when money is pulled out of superannuation and assets are sold.
“People come in and talk to me about Div 296, and we invariably end up talking about estate planning, and I use that as the opportunity to educate my clients on those implications, particularly for older clients who have the option of withdrawing money out of super because they satisfy a condition of release,” she said.
Westover said that for clients who have satisfied conditional options, a “knee-jerk reaction” may be that they are going to try and move assets out of their SMSF before 1 July 2025 when the new legislation is set to come into force.
However, she said that may not necessarily be the best move.
“If you've got a pension on foot, you may be better off withdrawing those assets in July. Why is that? Because potentially you may have a big capital gain,” she said.
“In a pension account, there’s no tax, although that income is attributable to the pension account. If you sell the assets and withdraw all the money, what happens to your actuarial percentage? It increases significantly.”
If asset sales are made in June, she said, the exempt current pension income is effectively going to be consistent throughout the whole year.
“If you sell in July, your proportion of your fund if you have a pension on foot that is now in pension phase increases significantly and your ECPI for the full year is going to be higher. You're still going to be able to apply it against any capital gain that you made in July,” Westover said.
She said it is important for advisers to model different outcomes for their clients and part of that modelling needs to be on the timing of the sale of assets.
“We don't need to pull out immediately in June. Think about what it might mean in the timing of the sale of the assets, and of course, tax rates outside of super. From a high marginal tax rate, it’s probably still better having money in super,” Westover added.
“For clients who don't have significant income outside of super, part of it might be withdrawing some of those assets, investing in their own names to make the most of the tax-free threshold personally, and then reducing any difference in liability within their super funds. It's not necessarily going to be all or nothing.”
The SMSF Adviser Technical Strategy Day will be moving to Melbourne on 22 October, and Sydney on 24 October. Tickets are still available for these events.
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